Love is in the air…..but how does that impact your tax affairs?

With Valentines Day having just passed and whilst romance is still in the air I thought this was an ideal time to talk about marriage - more specifically the tax implications of being married or entering into a civil partnership. You may or may not be surprise to hear that as a Tax Adviser clients often ask 'are there any advantages to being married?' and the answer is yes there can be. Here are five (quite unromantic!) ways you could be better off by saying ‘I do’:

  • The married couples allowance applies to married couples and civil partners provided at least one party to the relationship was born before 6 April 1935. The allowance is given as a deduction against the overall tax bill and the maximum allowance available is currently £835.
  • Then there is the marriage allowance. Introduced from April 2015, this allowance allows one spouse/partner to transfer part of their personal allowance to the other resulting in a potential tax saving of up to £212. In order to claim this relief the lower earner must have income of less than the personal allowance (currently £11,000) and the other spouse/partner’s income must not exceed the higher rate threshold (currently £31,785). It is not possible to claim both this and the married couples allowance so where both could apply you may be better off claiming the married couples allowance instead.
  • Another useful tip for spouses/civil partners is to rearrange the way your income producing investments are held. This is useful if one of you has lower income than the other and either has some of your personal, savings or dividend allowances left unused, or pays tax at a lower rate. By transferring some income producing assets (such as savings accounts, shareholdings or rental property) to a lower paid spouse or partner’s name you could save tax of up to 38.1%.
  • For Capital Gains Tax purposes couples can transfer assets to each other without any capital gains or losses arising. This can be useful for income tax planning but can also be advantageous for capital gains tax planning. For example, assets held in your sole name could be transferred to your spouse/civil partner before sale in order to utilise both of your annual exemptions potentially saving tax of up to £3,080.

    A couple are only allowed one qualifying main residence between them for the Principal Private Residence Relief. If you each own a property and continue to use them both to live in then unfortunately only one of them can be treated as your main residence.

  • The main tax advantage however relates to Inheritance Tax. A couple can own assets worth up to £650,000 between them before any tax will be due on death. Such couples can also transfer assets to one another free of Inheritance Tax (subject to certain restrictions for non-domiciled individuals). Couples can also transfer any unused nil rate bands to their surviving spouses/partners on first death. This protects the nil rate band on first death if all assets pass to their spouse/partner.

    Marriage could also help other people save Inheritance Tax. Gifts on marriage either between the couple themselves, or from family members could be ignored for Inheritance Tax purposes. Parents can gift £5,000 each whilst grandparents can gift £2,500 each.

And finally what if it all goes wrong? When it comes to separation and divorce timing is everything so speak to us as soon as possible. You may also find the article ‘A Taxing Divorce’ written by my colleague Helen Thornley useful.

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